2017 (12) TMI 424 - AT - Income Tax

Tribunal Upholds Assessee's Position on Expenses, Emphasizes Evidence

DCIT, Circle-49, Kolkata Versus M/s Nimbus Industries And Vice-Versa

DCIT, Circle-49, Kolkata Versus M/s Nimbus Industries And Vice-Versa - Tmi Issues Involved:1. Disallowance of commission paid to M/s R.N. Forgings Pvt Ltd.2. Disallowance of commission paid to three individuals.3. Disallowance of excess interest paid to persons covered under section 40A(2)(b) of the Income Tax Act.4. Disallowance of interest on loans availed by the assessee.Detailed Analysis:1. Disallowance of Commission Paid to M/s R.N. Forgings Pvt LtdThe primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance of commission paid to M/s R.N. Forgings Pvt Ltd amounting to Rs. 44,55,078. The Assessing Officer (AO) disallowed the commission on the grounds that M/s R.N. Forgings Pvt Ltd did not have expertise in the field of HDPE pipes and irrigation systems, and there was no evidence of services rendered.The CIT(A) deleted the disallowance, noting that the AO's conclusions were based on assumptions without field enquiry or evidence. The CIT(A) observed that the commission agreement was valid, payments were made through account payee cheques, and TDS was duly deducted. The CIT(A) also highlighted an increase in sales through M/s Nimbus Irrigation Pvt Ltd (NIPL) due to the efforts of M/s R.N. Forgings Pvt Ltd.The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not conduct any enquiry with M/s R.N. Forgings Pvt Ltd or their AO. The Tribunal noted the increase in sales and the acknowledgment of services by NIPL, concluding that the disallowance was based on suspicion without evidence.2. Disallowance of Commission Paid to Three IndividualsThe issue was whether the CIT(A) was justified in upholding the disallowance of commission paid to three individuals amounting to Rs. 10,81,079. The AO disallowed the commission due to the absence of written agreements and lack of evidence of services rendered.The CIT(A) upheld the disallowance, stating that there were no agreements, and the assessee failed to prove the services rendered. The Tribunal, however, allowed the assessee's cross-objection, noting that the commission agents had duly accounted for the commission in their income tax returns and paid taxes. The Tribunal emphasized that the business expediency and services rendered were proved, and the AO did not verify the claims with the AO of the commission agents.3. Disallowance of Excess Interest Paid to Persons Covered Under Section 40A(2)(b)The issue was whether the CIT(A) was justified in deleting the disallowance of excess interest amounting to Rs. 1,92,313 paid to persons covered under section 40A(2)(b). The AO restricted the interest rate to 15% p.a., considering 18% p.a. excessive.The CIT(A) deleted the disallowance, noting that the interest rate of 18% p.a. was not excessive by market standards and was allowed in the previous assessment year. The Tribunal upheld the CIT(A)'s decision, observing that the interest rate was comparable to bank rates and not excessive for unsecured loans.4. Disallowance of Interest on Loans Availed by the AssesseeThe issue was whether the CIT(A) was justified in deleting the disallowance of interest amounting to Rs. 13,69,122 on loans availed by the assessee. The AO disallowed the interest due to the lack of response from loan creditors and insufficient documentary evidence.The CIT(A) deleted the disallowance, noting that the loans were accepted as genuine, and the assessee provided evidence of utilization for business purposes. The Tribunal upheld the CIT(A)'s decision, emphasizing that the genuineness of the loans and their utilization for business purposes were proved, making the interest allowable under section 36(1)(iii).Conclusion:The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues. The Tribunal emphasized the importance of evidence and verification in disallowing expenses and interest, and the necessity of viewing business decisions from the perspective of the businessman rather than the revenue.